Exempt and Outside the scope of VAT differences

Difference between Exempt and Outside the scope...

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Related to the above post could someone kindly tell us the difference between Exempt and Outside the scope of VAT. Which common transactions would fall under each category?

Incase someone notices and comments on the timing of these posts let me make it clear - I am a night owl!

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By occca
09th May 2010 08:00

Summary

You will find this useful http://www.hmrc.gov.uk/vat/forms-rates/rates/rates.htm

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By Figurate
09th May 2010 11:29

Out of Scope or Exempt

Out of scope - nothing to do with VAT at all (eg. payroll transactions, internal bookkeeping journals etc...)

Exempt supply - means that businesses supplying exempt goods/services cannot claim back the input (purchase) VAT relating to that supply.  If you are purchasing exempt supplies, you will have not VAT to recover.

 If you are using Sage to produce your VAT returns, Sage will include T2 (exempt) transactions in boxes 6&7.  It will exclude T9 transactions entirely.  But in both cases, there will be no input (purchase tax) to recover (so no effect on box 4, VAT reclaimed on purchases or box 1, VAT due).

If you sell only exempt goods/services, you cannot register for VAT.

If you sell a mix of exempt and VATable goods/services, you can only reclaim the input (purchase) VAT relating to the VATable goods/services.

Louise
www.figurate.co.uk
www.happyaccountant.com

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By Figurate
09th May 2010 12:18

Sage VAT Codes for Common Transactions

T0 (Zero Rated) = trains & tubes, some food, scheduled flights

T1 (Standard Rated) = most purchases from a VAT-registered supplier.

T2 (Exempt) = postal supplies provided by the post office (eg, you buying stamps)(see: http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000114&propertyType=document#P34_2182 )

insurance transactions (see: http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000129&propertyType=document#P46_4723 )

Financial Services/bank charges (there are some exclusions from this)

T9 (Outside scope of VAT) = unregistered suppliers, payroll transactions, internal bookkeeping journals (except may be those correcting a previous VAT error), tolls & congestion charges.

Louise
www.figurate.co.uk
www.happyaccountant.com

 

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